That's what Chris Green, principal technology analyst at Davies Murphy Group Europe, claimed toBBC News. While he says that Microsoft Corp. (MSFT) may never pull the trigger and release the device, he explains, "Microsoft is hedging its bets. The firm is heavily invested in Nokia succeeding with its Windows Phone handsets but can't allow for its failure to torpedo the platform. At the very least Microsoft will be developing its own handset to go to market in case Nokia and others don't do better."

But Microsoft CEO Steve Ballmer tells BBC News that his company won't shy away from trying to "set a new standard" in hardware markets where it sees its partners struggling. He comments, "Is it fair to say we're going to do more hardware? Obviously we are... Where we see important opportunities to set a new standard, yeah we'll dive in."

"We have committed ourselves on a path where we will do whatever is required from both a hardware and a software innovation perspective and the cloud innovation perspective in order to propel the vision that we have."

II. Microsoft Entrance Scares Some Struggling OEMs

The promise of Microsoft "diving in" is alarming to some OEMs. Taiwan's Acer, Inc. (TPE:2353) "warned" Microsoft to reconsider the Surface tablet. In an interview its CEO JT Wang commented, "We have said [to Microsoft] think it over. Think twice. It will create a huge negative impact for the ecosystem and other brands may take a negative reaction. It is not something you are good at so please think twice."

But Acer is not exactly the most self-assured PC maker out there. Mr. Wang described the build quality of his company's own products last year as "cheap", bemoaning how "unprofitable" his firm was.

More confident firms seem less worried about Surface phones or tablets.

Dell, Inc. (DELL) VP Kirk Schell views the Surfaces as an opportunity to introduce customers to the promise of Windows 8, which will in turn drive his company's sales. He remarks, "The announcement of Surface was necessary to have a proof of concept and to get people excited about what was coming to push application development and create some buzz out there. They've invested so much in Windows 8 it was important to make it work, so I felt Surface was the logical thing to do."

III. Nokia on Surface Phone: "Great!"

When asked about the prospect of a surface phone, former Microsoft Canada executive Stephen Elop -- now the CEO of Nokia Oyj. (HEX:NOK1V) -- offered praise for the idea. He commented, "[It would be] a stimulant to the ecosystem."

It's possible Microsoft could partner with a third party to produce its vision in the form of Microsoft-branded hardware; if so Nokia would likely be a leading candidate. That's the approach Google Inc. (GOOG) -- like Microsoft, a software company at its roots -- used to promote Android tablets/smartphones, via its Google-branded"Nexus"devices.

But it's possible that Microsoft will simply design the devices on its own. As it has shown with the Surface tablet and the Xbox/Xbox 360, Microsoft has evolved into a company thoroughly capable of producing its own intriguing third party hardware.

Microsoft isn't looking to leave its treasured OEM partners behind. In fact much of its own Surface tablet launch event was dedicated to promoting its OEM's Windows 8 designs, designs which are technically rival's of the event's star attraction. Talking about Windows 8 and Surface Mr. Ballmer stated, "This is one of two or three big moments in Microsoft's history."

Steve Ballmer called the launch of Windows 8/Surface a top moment in Microsoft's history. [Image Source: Getty Images]

Big indeed, but Microsoft isn't looking to usurp its partner OEMs quite yet, although it's clearly unafraid to give them a friendly push.

Pick and choose from your survey of choice and they'll have wildly different results.

Microsoft's rate of 3%-5% clearly cannot be trusted.

A 2010 survey I read of 500000 people (quite a big sample size) put failure rate at 42%. Clearly the bulk of failures were from the first couple years and the rate reduced as time went on, but it cannot be overstated how faulty the 360 was over the first several years.

Also, 3%-5% is on the high end of standard failure rates for a piece of consumer electronics, yet you don't hear anything on the epidemic scale of 360 failure among things like smartphones or hard drives (not counting the old IBM DeathStar, which WAS very high at about 30%-40%, or OCZ Vertex 2 SSDs at around 10%), and all of those things have high end failure/return rates of about that much.

To believe that it is at only 6% when so much evidence through both independent research and anecdotal evidence says otherwise is strange.

And to be clear because this thread has been so derailed, I think worrying about the quality of the Surface because of the XBox is ridiculous. There is no reason to think that XBox levels of hardware failure is going to affect the Surface. They learned their lesson, plus there is plenty of other MS hardware that has worked fine for years (Zune HD, etc)